Subsidy sop for oil firms

New Delhi, Feb. 11: The finance ministry has issued a “comfort letter” that promises Rs 25,000 crore additional subsidy to state-run oil firms to compensate them for selling diesel, kerosene and domestic LPG at regulated prices.

The move by the ministry will help IOC, BPCL and HPCL to boost their financials as they come out with third-quarter results this week.

Oil company officials said the letters were “comfort letters only” as the actual transfer of the subsidy would take place only after Parliament approved the supplementary demands for grants in the forthcoming Budget session.

The firms are seeking additional compensation of Rs 50,000 crore from the government as part of the unmet revenue loss incurred by them during the current fiscal.

Earlier, the government had released Rs 30,000 crore as subsidy. With the latest sanction, it has met about 44 per cent of the Rs 124,854 crore revenue the three firms together lost during the April-December period this fiscal.

For the first six months of 2012-13, the total under recovery — loss suffered by firms for selling fuel at controlled price — was Rs 85,600 crore. The government and the upstream companies (ONGC, Oil India and GAIL together) compensated Rs 30,000 crore each. The unmet amount was Rs 25,600 crore.

The companies are seeking the remaining compensation of Rs 25,000 crore for the first six months and Rs 25,000 crore for the third quarter of the current fiscal.

IOC, BPCL and HPCL lost Rs 39,268 crore in revenues on selling diesel, LPG cylinder and kerosene at government controlled rates in the October-December quarter. Of this, about Rs 15,000 crore will be made good by upstream firms such as ONGC and OIL.

The oil marketing firms reported profits in the second quarter of this fiscal when the government began to dole out the money on account of under-recoveries. IOC posted a net profit of Rs 9,611.35 crore, while BPCL posted a net profit of Rs 5,034.79 crore. HPCL also reported Rs 2,327 crore net profit in the quarter.